Catering to characteristics
Rev.
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Author
Contributions
- Hanson, Samuel (Samuel Gregory) - Contributor
- Harvard Business School - Contributor
Publication
2009 - Harvard Business School, Boston, Massachusetts
Language
English
Word Count
13,750 words, Guess
Page Count
55 pages
Identifiers
- OCLC Control Number428434277
- Open LibraryOL45158914M
Description
When investors overvalue a particular firm characteristic, corporations endowed with that characteristic can absorb some of the demand by issuing equity. We use time-series variation in differences between the attributes of stock issuers and repurchasers to shed light on characteristic-related mispricing. During years when issuing firms are large relative to repurchasing firms, for example, we show that large firms subsequently underperform. This holds true even when we restrict attention to the returns of firms that do not issue at all, suggesting that issuance is partly an attempt to cater to broad time-varying patterns in characteristics mispricing. Our approach helps forecast returns to portfolios based on book-to-market (HML), size (SMB), price, distress, payout policy, profitability, and industry. Our results are consistent with the view that firms play an important role as arbitrageurs in the stock market.
Subjects
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